TMI Blog1998 (10) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Jabalpur Bench in the case of ITO v. Sagar Co-op. Central Bank [1979] 1 Taxman 559 (Trib.) dated 10-1-1979 and the decision of the Pune Bench in the case of Ahmednagar Distt. Central Co-op. Bank Ltd. [IT Appeal No. 268 (Pune) of 1987 dated 6-4-1990] for assessment year 1982-83. The Assessing Officer was not satisfied with the submissions made by the assessee and held that the collection of bills on behalf of MSEB and hence earning of commission was not banking business of the assessee. He, however, allowed 1% as expenses for earning such commission and estimated the income at Rs. 34,36,044 which, according to the Assessing Officer, was taxable as non-banking business of the assessee. 2. The assessee appealed before the CIT(Appeals). The assessee explained the entire mode of collection of commission on behalf of the MSEB and reiterated that the case of the assessee was fully covered by the two decisions of two different Benches of ITAT referred to supra. The CIT(Appeals) noted that the Pune Bench had overruled its own decision in the case of Osmanabad Distt. Central Co-op. Bank Ltd. [IT Appeal Nos. 817 and 818 (Pune) dated 31-7-1984] and that the decision of the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from commission on bill collection for MSEB is eligible for deduction under section 80P, the first point considered by the Pune Bench was that the Madhya Pradesh High Court in the case of CIT v. Dhar Central Co-op. Bank [1984] 149 ITR 438 / [1985] 20 Taxman 258 had held that the income from commission, brokerage, Government security etc. should be regarded as income attributable to the business of banking. According to the learned departmental representative, the very starting presumption of the Pune Bench that in the case of Dhar Central Co-op. Bank (supra), the Madhya Pradesh High Court had held that income derived from commission, brokerage should be regarded as income attributable to the business of banking, is wrong. What has been actually held in this case is that commission from dealings in bills of exchange (and not any commission) is income from business of banking. The Hon'ble Madhya Pradesh High Court held that this income is attributable to the business of banking. The learned departmental representative submitted that it may be noted that in second para on page 440 of this Report even the Madhya Pradesh High Court has taken a view"... in our opinion what is materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank Ltd. (supra) which is directly contrary to its judgment on the issue of income from lockers and both these activities are placed one after the other in clause (a) of section 6(1) of the Banking Regulation Act, 1949. He submitted that if the I.T.A.T. finds it difficult to change its decision, the case requires to be referred to the Special Bench of the I.T.A.T. The learned departmental representative further submitted that one more reason canvassed for change of the opinion by the Tribunal in the case of Ahmednagar Distt Central Co-op. Bank Ltd. (supra) was that in respect of commission from bills collection activity, no judgment of any High Court was available whereas in respect of income from safe deposits vaults i.e. lockers, in the following judgments the High Court of Madhya Pradesh has taken a decision against the assessee : (i) Bhopal Co-op. Central Bank v. CIT [1988] 169 ITR 573 / [1987] 35 Taxman 114 (being followed by the Pune I.T.A.T.), (ii) CIT v. Jila Sahakari Kendriya Bank Maryadit [1997] 90 Taxman 426. The learned departmental representative further drew our attention to the decision of Ahmedabad Bench in the case of Dy. CIT v. Gujarat State Co-op. Bank Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above in the matter. 7. Going back to the decision of the Tribunal in the case of Ahmednagar Distt. Central Co-op. Bank Ltd. (supra), the learned departmental representative drew our attention to the observations of the Bench that the Supreme Court in Broach Distt. Co-op. Cotton Sales, Ginning Pressing Society Ltd. [1989] 177 ITR 418 / 44 Taxman 439 have held that the object of section 81 was to encourage and promote the growth of co-operative societies and as such the liberal consideration must be given to the operation of that provision. According to the learned departmental representative, as far as liberal interpretation is concerned, the Supreme Court in the case of CIT v. N. C. Budharaja Co. [1993] 204 ITR 412 / 70 Taxman 312 has recently held that liberal interpretation of incentive provisions is not to do violence to plain language of the section. He further submitted that in the case of Madhya Pradesh Co-op. Bank Ltd (supra) at page 443, the Supreme Court has held that the purpose of section 81 was to encourage co-operative societies in the country and yet it was held that, however, if such a co-operative society also engages in any activity other than the business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) does not overrule Cambay Electric Supply Industrial Co. Ltd.'s case (supra) in any way. The learned counsel, therefore, maintained that the law laid down by the Pune Bench in the case of Ahmednagar Distt. Central Co-op. Bank Ltd. (supra) and the Jabalpur Bench in the case of Sagar Co-op. Central Bank (supra) is still good law. 10. We have considered the rival submissions and perused the facts on record. In order to claim exemption under section 80P(1), read with section 80P(2)(a)(i), what the assessee is required to prove is that the income in question is "attributable" to the business of banking. Section 5(b) of the Banking Regulation Act, 1949, defines what the term "banking" means. It does not say that activities defined as "banking" were the only activities attributable to the business of banking. Section 6(1) of the Banking Regulation Act, 1949 enumerates various activities which a banking company could carry on. In this regard, it has to be noted that the activity of bill collections falls under section 6(1)(b) of the Banking Regulation Act, 1949 under which a bank is permitted to act as agent for any Government or local authority or any other person or persons. This acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 80P(2)(a)(i). Both these decisions have duly considered the interpretation of section 6(1) and meaning of the words 'in addition to the business of banking'. They have duly noted the difference in the language of section 81 and section 80P(2)(a)(i). Whereas section 81 exempted income derived from banking, section 80P(2)(a)(i) allows deduction in respect of income attributable to the business of banking. This distinction in language has now been approved and recognised by the Hon'ble Supreme Court in the case of Bangalore Distt. Co-op. Central Bank Ltd. (supra). In view of this latest decision of the Supreme Court, the point seems to be well-settled. The earlier decision of the Supreme Court in the case of Madhya Pradesh Co-op. Bank Ltd. (supra) has to be confined to the facts of its own case, because it was in the context of section 81 and not in the context of section 80P(2)(a)(i). It is significant that the Pune Bench in the case of Ahmednagar Distt. Central Co-op. Bank Ltd. (supra) was itself faced with the dilemma whether to follow an earlier decision against the assessee. But the then Members resolved it by holding that in view of the subsequent decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of banking. 13. Coming to the case of Vellore Electric Corpn. Ltd. (supra) relied upon by the learned departmental representative, we find that it is exactly how the Supreme Court applied the test of attributable. It is also to be noted that Vellore's case does not overrule the case of Cambay Electric Supply Industrial Co. Ltd. (supra) in any way. There, the Supreme Court was concerned with the creation of contingencies reserve and Development reserve and investment of the sums appropriated to the said reserve in securities authorised under the Indian Trusts Act. Referring to this activity on page 577, the Supreme Court held that creation of this reserve and investment is a condition statutorily incorporated in the licence granted to the assessee and, therefore, incidental to the carrying on of the business of generation and distribution of electricity by the assessee. Sections 6(1) and 6(2) read together also provide a condition statutorily incorporated in the Banking Regulation Act which is to say, equivalent to licence granted to an electric company. If thus a condition of activity is something which has been statutorily incorporated in the Banking Regulation Act, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndings of the authorities below and hold that the commission income of Rs. 34,36,044 earned by the assessee bank from MSEB bills collection is banking business and hence exempt under section 80P(2)(a)(i). This ground accordingly succeeds. 17. Ground No. 2 has been raised as an alternative ground. It has been submitted that the learned CIT (Appeals) is not justified in not considering the submission and information about the expenditure incurred by the assessee bank on staff engaged on the bills collection activity on behalf of the MSEB. It has been submitted that the activity in fact runs in loss and the loss on this activity is about Rs. 9 lakhs and in the alternative this loss may be allowed against the other non-banking business income. Since the assessee has succeeded on the main ground and in ground No. 1 we have held that the entire income of commission from MSEB is exempt under section 80P(2)(a)(i), this ground looses its relevance and accordingly, we do not deem it fit to adjudicate upon this ground. This ground is accordingly dismissed as infructuous. 18. The next grievance of the assessee is that the learned CIT (Appeals) is not justified in confirming the income dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st-house and premises by holding it as non-banking business income. After hearing both the sides, we see no ground for interference as the maintenance of guest-house is not an essential part of the activities of the assessee and hence income arising out of such activity has to be held as non-banking income. The assessee fails on this ground. 22. The next grievance of the assessee is that the learned CIT(Appeals) is not justified in confirming the addition of Rs. 4,921 on account of miscellaneous income and from sale of old newspapers, stationery charges, telephone recovery etc. This issue stands squarely covered in favour of the assessee and against the Revenue by the order of the Tribunal in the case of the assessee in ITA Nos. 314 to 317/PN/85, date 17-6-1987 relating to assessment years 1977-78 and 1979-80 to 1981-82. Following the ratio laid down in the aforesaid order, we direct the Assessing Officer to treat the amount of Rs. 4,921 as banking income of the assessee. This ground accordingly succeeds. 23. The last grievance of the assessee is that the learned CIT(Appeals) is not justified in not deciding and setting aside the issue regarding chargeability of penal interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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